Corporate Finance - Semester alef 2016-17
Yossi Spiegel

Sunday, 13:00 - 15:45, room 305 recanati

Description:  This course is intended for research students either at the master or Ph.D level. The main purpose of the course is to give research students tools to write their own research in corporate finance and to give them enough background about the field so they can comfortably read the current literature in the field. Given its purpose the course will not merely cover the basic ideas but will also go into technical details which are crucial for writing research papers (as such the course will not be "easy" and will require substantial amount of work). The course focuses on theoretical models of capital structure and payout policies. We will start with the M&M invariance results (both for capital structure and dividend payments) and then will examine models that explain why capital structure and payout policies do matter. The driving forces in these models will be taxation, agency frictions, asymmetric information, the market for corporate control, and interaction with competition in the product market.


Evaluation:  Evaluation will be based on a final exam. The final exam will be held on Sunday, 5/3/2017  (but check the yedion to be 100% certain).  The exam will be open book - you would be able to use any material you'd like.


Additional material: For an excellent survey of the literature on capital structure, see Harris M and A. Raviv, (1991) "The Theory of Capital Structure," Journal of Finance, 46(1), 297-355.

Another useful overview of the literature is Myers S. "Capital Structure," Journal of Economic Perspectives, 15(2), 81-102.

Jean Tirole  - The Theory of Corporate Finance

Final exam in semester alef, 2003/4

The tentative plan for the course*

Week Topic Readings Problems
Week 1
Brief introduction


M&M 1958 and 1963 - ppt

Empirical evidence on capital structure and payout policies

Rajan and Zingales, JF 1995

Frank and Goyal, 2007

Topic 1: The M&M propositions

  M&M with corporate and personal taxes

M&M the tradeoff theory - ppt
Topic 2: Tax-based theories of capital structure

Miller, JF 1977

 Week 2-3 Tax based models of capital structure: the "tradeoff" theory Kraus and Litezenberger, JF 1973

De Angelo and Masulis, JFE 1980

Agency models of capital structure:
  • the cost of outside equity
  • the asset substitution problem
  • The debt overhang problem
Agency - ppt
Topic 3: Agency models of capital structure

Jensen and Meckling, JFE 1976

Repullo and Suarez, EER 2000

Weiss and Wruck, JFE 1998

Myers, JFE 1977

Stulz, JFE 1990

Week 4
The over- and underinvestment problems Berkovitch and Kim, JF 1990

The soft budget constraint

The soft budget constraint problem - ppt
Dewatripont and Maskin, RES 1995
Problem set 1


Week 5
Agency costs of debt and
Debt renegotiation

Gertner and Scharfstein - ppt
Gertner and Scharfstein, JF 1991
 Problem set 2


Week 6 Credit rationing - Ch. 3-4 in Tirole

Credit rationing - ppt

Week 7-8
Capital structure and managerial compensation

Grossman and Hart 1982 - ppt

Berkovitch, Israel, and Spiegel - ppt

Grossman and Hart, 1982

Berkovitch, Israel, and Spiegel, JEMS 2000

 Weeks 9
Capital structure and managerial compensation
Derivation of mean-variance utility function

Holmstrom and Tirole, JPE 1993

Notes on Holmstrom and Tirole, JPE 1993

 Weeks 10-11
Capital structure under asymmetric information

Asymmetric information - ppt

Signalling - ppt

  Topic 4: Asymmetric information models of capital structure

Myers and Majluf, JFE 1984

Ross, Bell Journal 1977

Leland and Pyle, JF 1977

Rock, JFE 1986

 Problem set 3


Week 12
Dividend payments under asymmetric information

Dividends - ppt
Bhattacharya, Bell Journal 1979
Bernheim and Wantz, AER 1995

 Week 13
Capital structure and product market competition

PMC - ppt
Topic 5: Capital structure and product market competition

Brander and Lewis, AER 1986
Bolton and Scharfstein, AER 1990
Spiegel, JEMS 1996

Problem set 4


Week 14
Capital structure and the market for corporate control

Corporate control - ppt
Topic 6: Capital structure and the market for corporate control

Grossman and Hart, Bell Journal 1980
Israel, JF 1991
Stultz, JFE 1988

* An important remark: the plan for the course is only tentative.  It is very likely that during the semester some changes and adjustments will have to be made.
Last updated: Tuesday, September 6, 2016